Another Step on Kashmir’s Silk Road

By Fisher Investments Editorial Staff, 04/16/2012

A busy day in Asia dawned Friday with the news North Korea’s planned test “rocket” launch failed—again. The nation’s now 0 for 3 on such tests (and one gets the general sense watching videos like this of Pyongyang’s Mission Control success doesn’t seem that close). Meanwhile, China announced Q1 2011 GDP slowed to an 8.1% y/y rate, slightly missing analysts’ estimates of 8.3%. Though, other data from Beijing allude to a potential quickening of growth in the period ahead. But to us, more interesting than Kim Jong Eun’s dud and China’s widely anticipated mixed bag of economic data was much more quiet news regarding Islamabad and New Delhi.

Following Pakistani President Asif Ali Zardari’s recent trip to India—the first by a Pakistani leader since 2005—India announced it will permit Pakistani foreign direct investment (FDI). Obviously, a trade relationship developing between these two nations likely doesn’t carry a gigantic, immediate economic or market return. But to fully see how meaningful this development is, consider this step in the broader context of India and Pakistan’s relationship—historically among the world’s most tense.

Since spinning off from Britain’s empire in the late 1940s, territorial disputes (principally over the divided Kashmir, which each nation claims full sovereignty over), have led India and Pakistan to fight three wars. Tensions and an arms race have occurred to boot, with each nation possessing nuclear weapons since Pakistan’s successful development in 1998. Only a decade ago, India and Pakistan stood at the precipice, pointing nuclear missiles at one another as jingoistic talk escalated. Outright fighting between the militaries occurred as recently as 2003 in Siachen, before a ceasefire ended nearly 20 years of snow-bound conflict over a piece of the Kashmir (mostly glaciated terrain at elevations between 16,000 and 20,000 feet). And Pakistani militant groups that some claim have loose ties to the military are widely believed behind the murder of hundreds of Indians in 2008’s Mumbai terrorist bombings. India has sought punishment for those responsible; Pakistan has largely demurred—a source of considerable chill over Indo-Pakistani relations until recently.

Last November, the two took a step toward changing the course of relations, following a path historical enemies Taiwan and China took in recent years: They began deepening trade ties—which, despite India’s quick growth, the nations’ close proximity and big combined population—have been historically tiny. Friday’s announcement regarding Pakistani FDI is another incremental step in this direction. And generally speaking, deeper trade ties—which bind together two nations’ economies more tightly—tend to quell tensions quite effectively. Since FDI implies Pakistan and Pakistani business interests would literally have a vested interest in Indian prosperity, it’s relatively easy to see how this might influence greater pacifism between the two nations.

And recent Indo-Pakistani talks haven’t been limited to economic relations. Earlier this week, Indian Foreign Minister Ranjan Mathai suggested thawing economic relations could lead to more open discussions on territorial disputes. In fact, it appears the groundwork has already been laid for such discussions, as Indian Prime Minister Manmohan Singh and Zardari agreed to move forward on talks regarding two disputed regions (Saichen and Sir Creek).

To be sure, there’s a long road to travel, and not all these issues will be easily resolved (the Mumbai terror prosecutions for one). Issues as broad and deeply rooted as these likely won’t be fixed overnight. But the new trade route developing between traditional enemies may hold the key to eventual peace in the region. Asian developments—which these recent moves exemplify well—are an important counterpoint to the popular perception the world’s more dangerous than ever.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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